an increasingly loud quarrel between the bi-state public agency and Silverstein Properties Inc. over when and how to proceed with the massive World Trade Center project, which has encountered numerous delays and cost overruns.
Compounding matters, the recession has apparently led the Port Authority to seek delays on the construction of SPI's Towers 2 and 3 for as long as 20 years while still providing financing for the 64-story Tower 4. On Thursday, citing a newly revealed Cushman & Wakefield forecast that says the towers wouldn't realize full capacity for as long as 30 years, Ward said, "This is the market Port Authority must function in as we look to how the towers get built out over time." Coscia and Ward called the study a "cautionary analysis" that instructs the Port Authority to "make sure you [are] building to meet the market in a financially prudent way."
The same day, C&W released a separate, unrelated study that said the Downtown submarket ended Q1 2009 with a vacancy rate of 8.1%--lower than the 9.6% vacancy of New York City overall. But the Port Authority chiefs speculated that Downtown's office market would see further future vacancies as companies like Merrill Lynch, AIG and other financial firms downsize or suffer other symptoms of the recession.
When asked by GlobeSt.com about comparisons to building the Twin Towers when there was little office market demand in the late 1960s and early 1970s, Coscia at Thursday's meeting said that for a long time, the towers were a drain on the Downtown office market, and that the new buildings coming online during a downturn could destabilize the real estate market. "The real estate industry might say the amount of space provided in that transaction ended up putting a major drag on the real estate market for decades," he said.
Taking a more cautionary approach to the future, Ward said "we've advanced a plan we feel is very financially responsible," but he and Coscia stressed that the authority continues to aggressively negotiate an agreement with SPI. It reportedly involves demands by the authority that SPI CEO Larry Silverstein puts up equity before the agency helps him with financing. Earlier, as a result of tightened credit markets, Silverstein had gone to the Port Authority seeking financing for his portion of the 16-acre project, Towers 2, 3 and 4.
At Thursday's meeting, the Port Authority leaders said that Silverstein was essentially asking the public sector to finance his buildings, arguing the public sector becomes his lender. A source close to Silverstein says that SPI is not asking Port Authority for financing, but instead to "backstop" or serve as a guarantor in the financing it would get from banks. What that would mean is that if Silverstein could not fill his buildings and SPI defaults on its loans, Port Authority would take control of the buildings and assume Silverstein's debt.
Coscia and Ward agreed at Thursday's meeting that "it would be foolish to spend too far into the market until we have a better sense of where we'll be." They said they seek to create a scenario that will allow all three of SPI's towers to be built "when the market is there."
However, sources close to SPI say the recession has created a greater sense of urgency to commence construction and that the massive project's building would create 30,000 construction jobs. A source tells GlobeSt.com that in a parallel to the WTC project, work began on the original six-million-square-foot Rockefeller Center in Midtown in 1930. Its construction provided 70,000 jobs during the Great Depression.
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